© Reuters. FILE PHOTO: The Tether logo is seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration
Written by Tom Wilson and Vidya Ranganathan
(Reuters) – A stablecoin tether is winning the race for the title of “least risky” asset in the cryptocurrency world.
As the regional banking crisis in the US widens and the regulatory crackdown on cryptocurrency companies deepens, investments within the cryptocurrency space are turning to tokens and coins that are viewed as relatively safe.
It is already the best-performing stablecoin – digital tokens pegged to some fiat assets such as the dollar – and has seen its market capitalization rise since March.
Its value is based on a 1-to-1 peg for a dollar cache and a supply cap of around 85 billion tokens. Demand for the coin has been so strong that its peg has been steadily above 1 since mid-April, reaching as high as 1.002 last week.
“The banking crisis is fueling a ‘bitcoin hyperinflation’ — the inevitable end that the dollar will be worthless,” said Anders Kvamme Jensen, founder of Oslo-based global digital asset and brokerage AKJ.
Jensen said that this motivated the search for the best cryptocurrencies such as bitcoin and ether.
Graphic – Tether Trust
At the same time, pegged stablecoins like Tether are seen as a store of value, as a tool to facilitate transfers between cryptocurrencies, and also as a collateral for derivatives trades.
Connor Ryder, research analyst at Caico, a digital asset data provider, says Tether’s premium reflects emerging confidence in both the peg and its perceived safety from the US Securities and Exchange Commission (SEC).
Tether is owned by iFinex Inc, a company registered in the British Virgin Islands which also owns the Bitfinex cryptocurrency exchange.
Tether’s main competitor USDC, operated by Boston-based Circle, has been hit by revelations that it has been hit by the collapse of Silicon Valley Bank and the SEC’s scrutiny of fintech and cryptocurrency firms.
Another stablecoin, BUSD, or the Binance USD token, has seen a decline since its developers said they would stop issuing new tokens after US regulators labeled the asset an unregistered security.
DAI has faltered due to its unusual peg to reserves that include stablecoins and other cryptocurrencies.
“Tether is seen as less US-oriented, which means less regulatory risk,” Jensen says. “Buying tether and bitcoin is really a vote against the US system.”
In CoinMarketCap’s database of 23,891 tokens, Tether has risen to No. 3 with a market capitalization of $82 billion and a stake of 6.83%.
No news is good news
Undoubtedly, the rope has long been beset by doubts about supporting the peg of its currency to dollar reserves. All stablecoins were hit last year during a series of events such as the collapse of crypto hedge fund Three Arrows Capital, which followed the depeg of the US dollar and the failure of cryptocurrency exchange FTX.
“The interesting irony here is that Tether has become the most trusted stablecoin in the industry,” says Ryder.
“Tether’s safe haven status differs from bitcoin in that it provides a safe peg of $1, and it is one of the only stablecoins in the space that can make that claim at the moment. On the other hand, it is viewed as a safe haven from monetary decadence. Like a form of money “outside” the banking system.
Bitcoin is also up about 73% this year, after hitting a resistance level around $31,000 last month.